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The impact of social‐responsibility screens on investment performance: Evidence from the Domini 400 social index and Domini Equity Mutual Fund
Author(s) -
Sauer David A.
Publication year - 1997
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/s1058-3300(97)90002-1
Subject(s) - socially responsible investing , social responsibility , equity (law) , separately managed account , portfolio , investment management , corporate social responsibility , investment strategy , economics , actuarial science , investment (military) , mutual fund , project portfolio management , investment performance , business , public economics , finance , microeconomics , return on investment , open ended investment company , corporate governance , public relations , management , political science , law , production (economics) , project management , politics , market liquidity
Socially responsible investors apply both financial and social criteria when evaluating investments in order to ensure that the securities selected are consistent with their personal value system and beliefs. This paper examines the potential impact these additional restrictions have on investment performance by comparing the performance characteristics of a carefully constructed, well diversified portfolio of socially screened stocks with two unrestricted benchmark portfolios. In contrast to prior research, the performance of the socially responsible portfolio examined in this paper is not subject to the confounding effects of trans‐ action costs, management fees, or differences in investment policy that are associated with actively managed mutual funds. Therefore, it is possible to more clearly isolate the potential performance implications associated with subjecting the investment opportunity set to social screening. Contrary to expectations, our findings indicate that application of social‐responsibility screens does not necessarily have an adverse impact on investment performance.